iPhone sales crater 15% in Apple's worst holiday results in a decade, and the forecast looks just as grim

Tim Cook, CEO of Apple, which is due to report its fiscal first-quarter results Tuesday afternoon.

source

AP

Apple's
fiscal Q1 saw its worst performance during the holiday quarter
in roughly a decade.

The results were largely in line with a preannouncement Apple
provided earlier this month.

But Apple's forecast for Q2 sales were at the low end of
expectations.

Apple said its installed base of iPhone users is 900 million,
and it's the first time it's disclosed the figure.

Sales of Apple's flagship iPhones plummeted 15% during the
holiday quarter, a sharp deterioration in a business that the
company said Tuesday will continue to struggle in the coming
months.

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Apple gave a weaker-than-expected sales-and-profit forecast for
its fiscal second quarter. Its guidance calls for sales to fall
by as much as 10% and for its earnings per share to plunge by as
much as 22%.

On a conference call with investors and analysts, Luca Maestri,
Apple chief financial officer, said problems that plagued its
iPhone sales during the first quarter - a strong dollar that
boosted prices in emerging markets, the reduction in subsidies
from its carrier partners that lowered the upfront price of its
phones, and its iPhone battery replacement program that
encouraged customers to hold on to older phones longer - would
continue to depress the company's smartphone sales.

"We expect the key factors that ... affected Q1 will also have
effect in Q2," Maestri said.

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Perhaps breathing a sigh of relief that the results and forecast
weren't even worse, investors reacted positively, bidding the
stock up nearly 6% in after-hours trading to $163.45.

Apple now has 900 million active iPhone users

Apple said there were 900 million active iPhone users in the
world - the first time the company has disclosed the size of its
"installed base" for iPhones. Across all of its devices, it now
has 1.4 billion active users, up 100 million from January,
company officials said. Apple's plan to shift its emphasis to
selling paid services, such as warranties and music
subscriptions, is heavily dependent on having a large and growing
base of users.

"We don't measure our success in 90-day increments, Apple CEO Tim
Cook said on a conference call with investors and analysts
following the report. "We manage Apple for long term."

He continued: "We are as confident as ever in the fundamental
strength of our business."

FQ2 EPS guidance: Apple didn't offer specific
EPS guidance, but its outlook for its second quarter implies
that it expects to post earnings of between $2.13 and $2.51 a
share, assuming its share count falls by about the same amount
it did in its first quarter. Analysts had forecast $2.62 a
share before its report. In FQ2 2018, the company earned $2.73
a share.

source

BI Intelligence

Poor iPhone sales hurt its results

Apple's results were weighed down by plunging sales of its
iPhones, its most important product line. The company posted
$51.9 billion in iPhone revenue. In the same period a year
earlier, it pulled in $61.1 billion from selling iPhones.

For the first time, the company did not report the total number
of iPhones it sold. The company controversially announced in
November that it would discontinue reporting unit sales of its
products, which many analysts took as a sign Apple expected the
number of iPhones its sells to decline.

With this report, though, the company did offer investors more
insight into the performance and profitability of what it sees as
its two major business lines - products and services.

"Within this installed base the percentage of users who are
paying for at least one service is growing very strongly," Apple
CFO Luca Maestri said on the conference call.

Services performed well; products didn't

Apple's services business, which includes such things as its
commissions on sales through its app store, the money Google pays
it for directing web searches its way, and subscriptions to its
iCloud and Apple Music offerings, saw its revenue grow 19% from
the first quarter of 2018 to $10.9 billion.

That growth rate is at the low end of the services-business
growth rate over the past two years, which has ranged between 17%
and 34%. Apple CFO Maestri cited a recently adopted change in
accounting rules for some of the slowdown in the service's
business growth.

source

BI Intelligence

Despite the growth of the services business, Apple still gets the
vast majority of its revenue from its product sales, which
includes sales of iPads, Macs, Apple Watches, and other devices
in addition to iPhones. That business line struggled, thanks to
the iPhone, with sales falling 7% from the year-earlier period.

For the first time, Apple disclosed the operating margin of both
business lines. Its products business posted an operating profit
of $25.2 billion, or 34% of sales. That was down from $28.6
billion, or 36% of sales in the year earlier period. By contrast,
the services business posted an operating profit of $6.8 billion,
or 63% of sales, up from $5.3 billion, or 58% of sales in the
first quarter of fiscal 2018.